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updated 3/25/2004 3:09:22 PM ET 2004-03-25T20:09:22

Silicon Valley shed far more jobs than originally feared last year and the area's ability to recover from the downturn may have been undermined by a shrinking labor force, according to a report released on Wednesday. 

Economists at the UCLA Anderson business school said the six-county region around San Francisco Bay had lost 400,000 payroll jobs since the start of the slowdown three years ago. 

San Jose, heartland of the technology industry, has lost 20 percent of its workf orce, a figure representing "the single largest loss of jobs by any major metropolitan area since at least the second world war", they said. 

At the same time, the pool of potential employees in the Bay area has fallen by 220,000, or about 7 percent of total employment, as people have left the area, retired or given up the search for work. 

"The net result is that the growth potential of the area is reduced accordingly, since the labor force defines the long-run growth potential of a region," the report said in an analysis of fresh employment data that showed employment in San Francisco shrank 3.5 percent in 2003, compared with initial estimates of 1.4 percent. 

Although the picture is rosier in and around Los Angeles, the most populous region in California, other findings also support the Anderson school conclusion that there is little prospect of California enjoying a recovery "bounce" similar to that of the mid-1990s. The potential for fulfilling pent-up demand that characterized the last recovery is not present this time. 

Many householders, encouraged by state tax concessions and low interest rates, have recently bought new cars and other durables, moved house and loaded themselves with debt. 

And while the economy is showing signs of growth and unemployment rates are edging down, it will this year have to absorb the effects of $12 billion in state spending cuts, and the likely loss of up to 25,000 jobs in the public sector. 

High motor fuel prices - standard gasoline costs about 30 cents a gallon more than the national average - and the weak dollar will increase the price of retail goods. 

The result should be a small improvement this year, with a little more acceleration to the end of 2006. "We do not, however, expect to see late-1990s boom times again in the foreseeable future," the report said. 

The worsening picture in the north of the state was balanced in part by revised figures showing employment in much of the more populous south improved more than expected.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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